NACVA NACVA Certifications CVA Questions & Answers

• Question 81:

  The state of the art in the twenty-first century involves incorporating one or all of the following elements into the discount rate to reflect risk EXCEPT:

  A. A basic equity risk premium over the risk 璮ree rate selected as the base

  B. One or more coefficients modifying the basic equity risk premium based on industry or other characteristics that are expected to affect the degree of risk for the subject investment

  C. An element reflecting the size effect

  D. None of these

  Correct Answer: D

• Question 82:

  Which of the following is/are NOT out of components of the discount rate?

  A. A. A "Risk-free rate" (the amount that an investor feels certain of realizing over the holding period). This includes: a) A "rental rate" for forgoing the use of funds over the holding period

  B. The expected rate of inflation over the holding period

  B. A premium for risk, this includes:

  a) Systematic risk (that risk that relates to improvements in returns on the investment market in

  general)

  b) Unsystematic risk (that risk is specific to the subject investment)

  C. Premium value

  D. Discount rate

  Correct Answer: CD

• Question 83:

  If Paola Pizza Parlors stock started the year at $10 per share, paid $0.50 in cash dividends during the year, and ended the year at $11.50 per share, then the total investment yield or rate of return for the year would be:

  A. 0.30

  B. 0.10

  C. 0.50

  D. 0.20

  Correct Answer: D

• Question 84:

  The discount rate is a market-driven rate. It represents the expected yield rate-or rate of return-necessary to induce:

  A. Investors to commit available funds to the subject investment, given its level of risk

  B. Yield rate

  C. Dividends

  D. Investment yield

  Correct Answer: A

• Question 85:

  The basic valuation model, which is central to the income approach to valuation, has only two variables. Which of the following is/are NOT out of those variables?

  A. The amount of the expected prospective economic income in each period

  B. The required rate of return (yield rate) by which the expected prospective economic income receipts should be discounted

  C. Common equity

  D. Economic income measured

  Correct Answer: CD

• Question 86:

  For valuation purposes, the measurement of economic income to be analyzed can be defined in several different ways. Different measurements of economic income that are commonly analyzed in this approach include the following EXCEPT:

  A. Payouts (e.g. dividends, interest, security sales proceeds, or partnership withdrawals)

  B. Cash flow (often measured as net cash flow)

  C. The discount rate

  D. Some measure of accounting earnings (often net income or net)

  Correct Answer: C

• Question 87:

  The value of an asset is the present value of its expected returns. Specifically, you expect an asset to provide a stream of returns during the period of time you own it. To convert this estimated stream of returns to a value for the security, you must discount this stream at your required rate of return. This process requires estimates of (1) the stream of expected returns and (2) the required rate of return on the investment. Value today always equals future cash flow discounted at the opportunity cost of capital. This is actually:

  A. Theory of valuation

  B. Theoretical and practical soundness of the valuation approach

  C. Return on investment

  D. Leverage ratios

  Correct Answer: A

• Question 88:

  Due to these complexities, for practical purposes it is acceptable to use the ratio as we defined it. However, the analyst is well advised to research:

  A. the subject companies' use of short-term debt

  B. the guideline companies' use of short-term

  C. Both the subject and guideline companies' use of short-term debt to determine whether to adjust this ratio to include all interest-bearing debt

  D. Whether to adjust this ratio to include all interest-bearing debt

  Correct Answer: C

• Question 89:

  Once in a while, someone perhaps a broker trying to sell a business quotes return on equity computed on a pretax basis. This definition can be very misleading, since:

  A. Income taxes are very a real cost

  B. Inclusion of income taxes is compulsory

  C. Operating Profit from sales is very significant

  D. Taxes are calculated on annual basis

  Correct Answer: A

• Question 90:

  The coverage of fixed charges is a more inclusive ratio than the times-interest-earned ratio in that:

  A. It excludes coverage of the items in addition to variable earnings

  B. It excludes coverage of the items in addition to interest

  C. It includes coverage of the items in addition to fixed earnings

  D. It includes coverage of the items in addition to interest

  Correct Answer: D